The 2008 Economic Crisis

[Brandan Kraft]

Oh boy, things are about to get VERY HAIRY. Look for the markets to tank slowly over the next 6 months! This appears to be a recession in the making worse than the 70s/80s!

[Brandan Kraft]

[Brandan Kraft]

It looks like the transformation to a service economy will not happen completely. We're headed back to manufacturing folks! Importing is about to get expensive. With the weaker dollar (not a completely collapsed dollar), American manufacturing will see new opportunities.

[Brandan Kraft]

Sense of crisis haunts trading floors

A palpable sense of crisis pervades global trading floors. Not since the meltdown of the Long-Term Capital Management hedge fund in 1998 have interest rate and derivative markets suffered such a breakdown in confidence.

In the past decade the scale of bond and derivative trading has expanded enormously, as global banks have provided easy access to trading for hedge funds and other investors.

That source of cash has dried up as banks seek to protect their deteriorating balance sheets amid writedowns of impaired assets. Big banks have pulled back from lending to clients for trading, starting a vicious downward spiral across the mortgage, interest rate swap, municipal bond, corporate debt and global credit derivative markets.

As investors have purged mortgages from portfolios, interest rate swap spreads – a barometer of bank credit risk – have surged more than a percentage point above Treasury bond yields.

snip...

Many expect the turmoil to go on for much longer than the 1998 crisis.

“LTCM was such a transitory event compared with today,’ Mr O’Donnell said. “This is not just about the collapse of one entity, this is about millions of homeowners who are underwater.”

Until home prices stop falling and foreclosure rates cease rising, investors will keep shying away from holding mortgages. On Thursday, Citigroup said it planned to reduce its US mortgage assets by $45bn during 2008.

Unlike past housing crises, the banking sector is far less well equipped to cope with the fallout because of the wave of banking consolidation in the last decade, said Mr O’Donnell. This means the pain has become concentrated among a small handful of institutions, all of whom play a crucial role in keeping all markets liquid.

“As each of the mega-banks begins to suffer from housing-driven balance sheet stress, they simultaneously pull credit lines from other fully-functioning markets,” he said.

[Brandan Kraft]

Disconnect In Treasuries

[Highlyfavored]

[Robert R. Higby]

Great documentary. I'm sure there are some wrong facts but certainly enough truth to scare immensely!

In this context it is interesting to note the recent move to exalt the Euro instead of the U.S. Dollar as the international currency of measure. The dollar has fallen to the equivalent of .65 euros.

I would agree with Abe Lincoln and all the others mentioned that only a government can be the legitimate issuer of a currency--as deficient and corrupt as a government might be.

[Brandan Kraft]

Government is going to default! There is NO other way around it! Get ready to be using Euros! Yippee! This is an opportunity for freedom from the IRS!

[Highlyfavored]

...This is an opportunity for freedom from the IRS!

Yes it is, and also an opportunity to soon start paying some stupid UN tax since we'll probably loose our national sovereignty in the deal too.

[wildboar]

I didn't vote because I'm not sure where I fall on the spectrum. I'm skeptical whenever anyone claims to know how long a recession will last or what the impact will be on the average citizen. It's alot like rising gas costs. It seems like almost every month gas gets up to about $3.15 a gallon and all the newspapers are talking about how it's just going to keep getting worse and that in two months the gas will be $6.00 a gallon. Then the next day or in a couple days it goes down to $2.80. I don't know if this is conspiracy or just people being alarmist or not thinking long term enough or what.

So who do all these recessions affect? The day traders who are engaged in very risky business? Yes, foreclosure rates are high but people need to take some responsibility for taking out loans that they can't afford to pay. Just because somebody is willing to loan you money doesn't mean you should take it. Alot of this is just the market settling into reality. The Federal Reserve created an unsustainable and unrealistic period of booming housing prices. It couldn't last forever. But I don't see the Federal Reserve getting eliminated by anyone anytime soon. People are scared about the Euro. Well, yeah if there's nothing behind your currency then maybe you should be a little scared. There was one thing in Farrell's article that I completely agree with:

7. More wars: Pentagon predicts bigger, costlier conflicts
The Pentagon's internal studies see a perfect storm accelerating wars worldwide: Global population growth, limited natural resources and global warming. Our war machine is exploding. The Pentagon gets over 50% in the new federal budget. We're only 21% of the world's GDP, yet spend 47% of the world's total military expenditures.
Our power-hungry mindset is becoming self-destructive, suicidal. Remember Nixon strategist Kevin Phillips' warning: "Most great nations, at the peak of their economic power, become arrogant and wage great world wars at great cost, wasting vast resources, taking on huge debt, and ultimately burning themselves out."

[Robert R. Higby]

One thing I believe is inevitable, as Brandan stated, is that the U.S. government will begin to default on its debt in the not too distant future. What this will mean for the private economy is a speculative exercise simply because it has not happened here before.

We do know that certain things will be unavoidable:

1. Higher taxes. When the government can't borrow money the pressure to raise its daily revenues will be explosive.

2. Reduced spending. Choices to scale back or eliminate large programs will be mandatory. This will result in a large cut of government jobs.

3. A SEVERE reduction in Social Security, probably the elimination of it for anyone who is now under 40-45 and huge cuts for anyone 45-60. They will eliminate the current payroll tax system and go to straight welfare (with no 'accounts'). Means testing will be implemented; they will take it away from anyone now 45-60 who has saved anything privately.

4. Huge cuts in Medicare and ultimately privatization; the beast cannot survive.

5. I can't see the government viewing war as a solution; there is nothing to be gained economically. The current occupation of Iraq costs us 3 times annually what their oil is worth!

[Brandan Kraft]

1. Higher taxes. When the government can't borrow money the pressure to raise its daily revenues will be explosive.

This will backfire because with everyone in debt up to their eyeballs, they will just go bankrupt and they will see the cause as "higher taxes!" Plus we know that higher taxes will hurt the economy as a whole - prolonged recession.

2. Reduced spending. Choices to scale back or eliminate large programs will be mandatory. This will result in a large cut of government jobs.

YES! This will be great. Goodbye Dept. of Education!

3. A SEVERE reduction in Social Security, probably the elimination of it for anyone who is now under 40-45 and huge cuts for anyone 45-60. They will eliminate the current payroll tax system and go to straight welfare (with no 'accounts'). Means testing will be implemented; they will take it away from anyone now 45-60 who has saved anything privately.

Move retirement age to 70+ first. Anyone who has their SS eliminated will not want to pay SS! The gov't cannot simply eliminate it for a group of people that has paid most of their lives without expecting a TAX REVOLT!

4. Huge cuts in Medicare and ultimately privatization; the beast cannot survive.

Yeah - goodbye Medicare - goodbye socialization.

5. I can't see the government viewing war as a solution; there is nothing to be gained economically. The current occupation of Iraq costs us 3 times annually what their oil is worth!

World War 3 could cause manufacturing to jump - although I honestly don't see anything like that occurring.

Future wars will be over resources. The USA has oil and food. FOOD is the next OIL - you wait and see - and the USA is positioned perfectly to remain the world's superpower. I believe that the future of the USA is bright, and we are looking at an opportunity to throw the commies off our backs. It will require a collapse of the economy and the way I see it, that's a GOOD THING.

[Brandan Kraft]

China is going to be ticked off when the U.S. defaults on its debt - it's possible that there will be war with CHina.

[Brandan Kraft]

“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.” ~~"Only Yesterday: An Informal History of the 1920’s" by Fredrick Lewis Allen

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."~~Ludwig von Mises

[rlhuckle]

The war is already begun--the honeybees are being eradicated; China is very patient.

[Highlyfavored]

The war is already begun--the honeybees are being eradicated; China is very patient.

When the bees are mostly gone food prices will sky rocket:

[Highlyfavored]

If other countries have weather modification technologies in place they could have adverse effects on the bees:

[Robert R. Higby]

China is going to be ticked off when the U.S. defaults on its debt - it's possible that there will be war with CHina.

I don't think so, without the sale of their manufactured goods to this country their people will again be starving like they were in the 60's!

In actual fact, the first group the U.S. will default on will be its own citizens and private investors, not the foreign government investors which are the most risky to disappoint. So go through your portfolios and see which funds contain U.S. Treasury Notes as one of the investments (I know that I have some). Get rid of these within the next few years.

[Brandan Kraft]

China is going to be ticked off when the U.S. defaults on its debt - it's possible that there will be war with CHina.

I don't think so, without the sale of their manufactured goods to this country their people will again be starving like they were in the 60's!

In actual fact, the first group the U.S. will default on will be its own citizens and private investors, not the foreign government investors which are the most risky to disappoint. So go through your portfolios and see which funds contain U.S. Treasury Notes as one of the investments (I know that I have some). Get rid of these within the next few years.

Right now I'm almost all within government bonds after getting out of stocks this week. Should I move to International Stocks?

[Brandan Kraft]

When the bees are mostly gone food prices will sky rocket:

http://www.youtube.com/watch?v=RoGY1FjdiH8

So far no crops have been reduced due to honey bees. Since the beginning of the 20th century, there have been several times documented when the honey bee population dropped significantly - mostly because of parasites. They have always come back.